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Saturday, November 26, 2022 | 10:14 pm

Affirm and Klarna Ramp Up Competing Efforts To Attract US Consumers

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Affirm and Klarna Ramp Up Competing Efforts To Attract US Consumers
Affirm and Klarna Ramp Up Competing Efforts To Attract US Consumers

Buy now, pay later has become nearly ubiquitous here in the U.S. As such, companies that offer that technology to merchants are unsurprisingly growing more competitive with each other.

Case in point. This past week, San Francisco–based Affirm announced it was making its buy now, pay later technology available to U.S. businesses that use Stripe’s payments tech. This means that a whole slew of companies that were not previously able to offer their customers the option to pay in instalments, now can.

The deal is significant for Affirm because Stripe, which was valued at $95 billion last year, has “millions” of customers globally. It processes hundreds of billions of dollars each year for “every size of business — from startups to Fortune 500s.” And this allows Affirm to generate more revenue as it makes money in part on interest fees. For its part, Stripe can offer prospective, and current, customers more payment flexibility.

Affirm — which was founded by PayPal co-founder Max Levchin — has built technology that can underwrite individual transactions, and once determining a customer is eligible, it can offer them the option to pay on a biweekly or monthly basis. Levchin is vocal about the fact that Affirm “was conceived as something of an anti-credit card.” The company went public last year and despite a dramatically lower stock price is showing recent signs of continued strength.

Also this past week, Sweden’s Klarna announced a new partnership of its own. The company, which last year was valued at $45 billion but has since had its share of struggles, said it teamed up with Marqeta to launch a new Klarna Card in the U.S. The card, according to the company, brings Klarna’s “Pay in 4” service to a physical Visa card. This is interesting because historically, buy now, pay later has focused on online shopping or people opting to pay in instalments at the point of sale. But last year, Visa said that “a growing list” of issuers, acquirers and fintech was using its technology to offer BNPL options to their customers. And Mastercard, too, last year announced its BNPL offering: Mastercard Installments. The credit card giant’s chief product officer Craig Vosburg said at the time: “At the heart of it, payments come down to choice — and people want more from their money with greater flexibility and control in how they pay and where they shop.”

So the fact that Klarna has now created its card is not entirely shocking. But it is illustrative of the measures that financial services companies — incumbents and fintech alike — are taking to make their instalment loans available to more consumers. It is also another example of just how competitive the BNPL space is getting, especially here in the U.S. In announcing the new card, Sebastian Siemiatkowski, co-founder and CEO of Klarna, said: “The fact that over 1 million US consumers signed up to our waitlist in a matter of weeks demonstrates the incredible demand for a fair and transparent alternative to conventional credit cards.” Interestingly, the Klarna Card does not charge any interest and is available for $3.99 a month. And the company says it is entirely free for the first 12 months after activation.

Notably, Klarna also said that over the past year, its “U.S. customer base has grown by over 65%, reaching over 25 million consumers.” For its part, Affirm noted in its recent fiscal third-quarter results that its number of active consumers had reached 12.7 million, up 137% year over year — although it did not provide a breakdown of how many of those are here in the U.S.

Meanwhile, I am not going to even try and predict what’s going to happen to the BNPL market overall in the coming months, as the current macro environment presents many challenges for all kinds of fintech. As the Wall Street Journal recently reported, “rising delinquencies and a slowing economy” are taking some of the lustrs of the BNPL space. But I can share with you a blog post that Affirm’s Levchin published on June 3 regarding his view at least on why his company is positioned to not only survive but also thrive in a downturn. Here is an excerpt:

We are confident in our ability to deliver strong growth while driving positive credit outcomes consistent with maintaining attractive unit economics…It is our mission to improve people’s lives, and we fully intend to rise to the occasion and meet this demand — and we plan to maintain strong unit economics by only extending credit that we believe can and will be repaid. Hopefully, this gives you a pretty good sense of what one might expect from Affirm in a downturn.

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